In this post I’m going to comment on a post by Guy Kawasaki on “The Top 10 Lies of Entrepreneurs”, although in reality there are 11…
I fully agree with Guy on some statements – where the lie is blatantly obvious.

On other points I don’t agree with everything he says. I think that the entire process – the initial pitch and the subsequent negotiations – are necessary and, perhaps most importantly, generate assumptions that oblige both parties to think and rethink the project. Without thinking it over, we can’t understand it.

It’s in many of these assumptions that the “lies” that Guy refers to are born.

We also shouldn’t forget that the majority of the lies are nothing more than responses to the investor’s own questions, which leads me to think that a lot of the time, those questions are badly phrased.

1- “Our projections are conservative”

Here Guy warns us that the projections of an Entrepreneur are never conservative.

I’d put it another way: an entrepreneur’s projections don’t need to be conservative. In general, as Guy says, the entrepreneur has no idea what the market turnover will be the. Similarly, the venture capitalist has no idea of market size, sales volume or related information.

If an investor asked me if the projections are conservative, I’d probably think that he doesn’t know much about risk capital.

The projections are nothing more than the starting point for deeper discussions. The help the investor get an idea of where he’s investing his money.

When we talk about projections, we’re talking about the assumptions on which the projections are based.

When an investor and entrepreneur talk about projections, the only thing they need to discuss is whether or not these assumptions are relevant. This is where an experienced investor can benefit an enterprise the most (apart from introducing the company to the right people later on).

The majority of the times, the decision to invest or otherwise in a project doesn’t come from the projections, but from the investor’s own judgement in detecting an unsatisfied need, a good business.

2- “(Big name research firm) says our market will be $50 billion in 2010.”

Guy says that all the entrepreneurs boast that their market is huge, independent of the project’s potential.

As with the first point, I think it is so difficult to define this that I can only think that the investors ask the wrong question. An investor that asks “What is the value of the market?” leaves themselves open to lies.

In innovative projects, the market value might be 50 billion if it becomes a world standard or 0 if no one shows any interest in the product.

The key question is not “What is the market value?” but “What is the chance that this project is a success?” or “what is the chance that this group of people are able to satisfy the market need?”.

3- “(Big name company) is going to sign our purchase order next week.”

Guy says that you shouldn’t play this card if you’re not sure you’ll close the order.

I agree. I think there’s nothing more shameful than an entrepreneur that lies about this.

The variation “we’re in negotiations with (Big name company)” is valid but these have to be real negotiations. I think it’s important to mention such discussions but not to make this the foundation of your project.

From my experience with Negonation, I can say that there are many meetings and negotiating sessions before closing the first sale. In the majority of cases, the sale is not completed until a while after the close of the first round of financing.

4- “Key employees are set to join us as soon as we get funded.”

Guy states that you have to ensure that the ‘key’ people confirm this information to the investor.

I think that the key people should be in the founding team.

A founding team with the key people can accomplish anything, including adding many more key people to the group.

I think that the most intelligent strategy is to demonstrate that the entrepreneurs are the key people and to not expose the need to add key people to the team.

It’s always better to visit the investors with the key team formed and not with promises to form it in the future.

5- “No one is doing what we’re doing”.

In this case, Guy says that no one is doing it because there is no market or because the entrepreneur is so lost that they cannot discover their competency.

I think that in this case Guy over-generalizes the issue. Following his reasoning, innovations would not exist, nor revolutionary ideas. Industrial secrets and confidentiality agreements would also be unnecessary.

To me, stating “no one is doing what we’re doing” is pretentious and arrogant, although it is possibly true.

In my experience with Negonation, during the development of Tractis, I’ve seen many projects that try to solve the same problem as us but in none of these cases do they have the same focus.

6- “No one can do what we’re doing”.

Guy states that arrogance is worse than stupidity…

I agree that saying this makes an entrepreneur look stupid. You just need to know that there are 6.7 billion people in the world to understand that humility and precaution are better allies.

7- “Hurry because several other venture capital firms are interested”.

Guy says that very few have the luxury of pressuring venture capitalists this way.

This is probably true but, all the same, I would never fail to mention to a venture capital firm that I’d visited others.

I wouldn’t do it with the intention of pressuring anyone, I simply believe that it’s better to have things clear from the start.
I think it’s worse that an investor finds out at the last minute that we didn’t close the deal with him because we signed with someone else. Even Guy should agree with this.

8- “Oracle is too big/dumb/slow to be a threat”.

Here guy compares the private jets and boats of the owners of the world’s largest IT companies with the budget airlines in which the entrepreneurs travel. And he uses this to demonstrate that it’s impossible to compete with the giants.

I don’t think that this is the most appropriate comparison. In the first place, the personal fortune of a shareholder, owner, CEO etc. has nothing to do with the company to which they are linked. Although there may be a correlation, it’s often not the case.

It’s also true that a big company is much slower than a smaller one. Anyone who’s worked in a multinational and a small or medium-sized business can tell you that.

But it is not enough to assume that we can ‘beat Oracle’ merely because we have a more flexible company.

The entrepreneur and the mega-company play a poker game knowing that the mega-company has the best hand. It’s a question of playing the cards at the right moment. It’s not impossible to win but it is very difficult.

9- “We have a proven management team”.

In this section, Guy ridicules those that state that their management team is experienced.

I wouldn’t be so quick to ridicule. In the first place, I think it shows a lack of respect. The entrepreneur is doing everything in his power to reach an agreement and start a business. On the other hand, the investor wants a solid team. It’s obvious that the entrepreneur will try to ‘sell’ his team.

This is just selling. Even Airbus plays up the advantages and plays down the disadvantages when selling planes.

All experience is relative. And therefore, open to subjectivity.

Guy also comments “If they were that experienced, they wouldn’t be asking for money”. Well, I know many people with a lot of experience that would move a project forward but simply don’t have the money to do it because they are young or because life itself is full of surprises.

10- “Patents make our product defensible”.

Guy says that using this statement too much may make the company seem too dependent on patents and that this, in reality, could be a weakness.

I agree with this point of view. The strengths of the project should be, primarily the group of people and secondly the idea. The rest is complementary.

11- “All we have to do is get 1% of the market”.

In this bullet, Guy says that no investor wants only 1% of the market and that it’s not that easy to even get that 1%.

Such graphic statements are nothing more than a catalyst for later reflection and discussion.

Throughout the growth of the company, 1001 such phrases and projections will be made.

With time, the numbers will start to consolidate and the moment will arrive in which the experience, time that has passed, and milestones reached will allow you to plan and project scientifically instead of predicting the future.

What is certain is that to move forward with a project and successfully close negotiations with investors, on one hand you need a first class group of people and on the other an investor with a lot of vision.